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I am tring to study for my final on my own and I am stuck on a

problem,please help. Here is the question…

Commercial paper usually sold at a discount. Fan Corp. has just sold

an issue of 90-day commercial paper with a face value of $1 million.

THe firm has received initial proceeds of $978,000.

a) What effective annual rate will the firm pay for financing with

commercial paper, assuming that it is rolled over evey 90 days

throughout the year?

b) If a brokerage fee of $9,612 was paid from the initial proceeds to

an investment banker for selling the issue, what effective annual rate

will the firm pay, assuming that the paper is rolled over every 90

days throughout the year?

Thanks!!!

Clarification of Question byhelp123-ga

I need this answer by Thursday.

Request for Question Clarification byomnivorous-ga

Help123 —

This is not a toughy but you've asked it in a fashion that's a bit confusing:

the $978K sounds like it's net of all fees (as they're usually taken

off the top). But in (b) it sounds as if you're adding $9,612

additional.

Are the brokerage fees additional? Or included in the discounted proceeds?

Best regards,

Omnivorous-GA

Clarification of Question byhelp123-ga

I assumed the brokerage fees are included in the discounted proceeds?

Request for Question Clarification byomnivorous-ga

Help123 —

I think that makes a) and b) the same, though there might be some

differences in tax assumptions. The fees would be possibly be

deductible instead of treated as a reduction in principal.

Best regards,

Omnivorous-GA

Clarification of Question byhelp123-ga

Omnivorous-GA –

Part a is calculating the effective interest rate.

Part b is calculating the effective annual return on the paper

Hope you can help,

Help123



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What would cost $220.00 at a gentleman's club?



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